The Next Frontier Multi Line State Funds

1. The Next FrontierMulti Line State Funds Presented by Don Collins Chief Marketing Officer & Vice President, Communications Glen Kuball CPCU,CIC,ARM,APA Vice President, Underwriting AASCIF 2010 POLICYHOLDER SERVICES WORKSHOP, AUSTIN, TX 10/19/10

2. The Next FrontierMulti-Line State Funds“Irrational Exuberance?” (…To drink the Kool-Aid, or not?) October 19th, 2010 Richard J. Foster – Managing Director, Guy Carpenter Jason Denechaud – Director of Accident, Health & Workers Compensation Underwriting, Catlin US

3. The Next FrontierMulti-Line State Funds “If you have seen one State Fund… you have seen one State Fund” • Organizational structure • State Agency / Private Public Mutual / Quasi-Governmental etc.. • Legislative “Charter” • Mission • Political environment • Tax position • Product distribution channel(s) • Other… (economic, geographic, etc..) Establish the Perspective

4. The Next FrontierMulti-Line State Funds Establish the Perspective Your perspective depends upon your (unique) position and view-point.. Do you see the young, or old lady?

5. The Next FrontierMulti-Line State Funds Establish the Perspective Your perspective depends upon your (unique) position and view-point.. Is this a goal – or wasn’t it?....... Not that I’m bitter!

6. The Next FrontierMulti-Line State Funds - Why consider offering other lines of insurance? “Well, let’s see...So far, I’ve got rhythm and I’ve got music. Actually, who could ask for anything more?”

7. The Next FrontierMulti-Line State Funds • Increasing product line offerings / Diversification • Value added to: • Insureds • Agents • Accretive to portfolio balance • Account retention & new business generation tool • Competition (Package writers) • “One-stop” point of coverage delivery • Differentiator from competition on core WC offerings • Additional revenue / expense mitigation • Underwriting income • Cash flow • Fee / commission income • Utilization of capital Why consider offering other lines of insurance?

8. The Next FrontierMulti-Line State Funds • Complimentary enhancements & benefits to core (WC) writings • Management / exposure data etc. • Claims litigation / denial rates • Harmonization with Loss Control / Safety program • Creation of bespoke programs • Associations etc. • Political • Local market dislocations • Enhancement of “mission” • Evolution • Capitalizing on corporate success and imaging • Growth Why consider offering other lines of insurance?

9. The Next FrontierMulti-Line State Funds - What are some of the considerations? To his horror, Irving suddenly realized he had failed to check his own boots before putting them on just minutes ago.

10. The Next FrontierMulti-Line State Funds • What product lines would we consider offering? • On what basis would we consider offering other product lines? • Direct (on “our” paper / against our capital base) • Indirect (as a reinsurance of another carrier) • Passive (as a conduit for coverage / other lines) • Need to establish a vehicle (agency) • Admitted / Non-admitted • What expertise is required? • Currently present • Acquired • Provided by a third party • What risk, if any, do we want to assume? What are some of the considerations?

11. The Next FrontierMulti-Line State Funds • What are the motivations? • Long-term commitment • Own / Third parties • Soft market “play” • What are the risks? • Financial (underwriting) • Reputational • Divergence from core area of competency • Political • Tax-exemption • Alien Governmental control statutes • Department of Insurance • Policyholders • Agents • Rating Agency reactions • Credit risk What are some of the considerations?

12. The Next FrontierMulti-Line State Funds • Cost • Hard & Soft • Systems / IT • Staffing • Distraction from core (WC) & mission • Reputational • Legal • Changes to legislation • Establishment of agency • Licensing etc • “Opening Pandora’s box” • Political pressure to cover “distressed” market segments • Target market segments • Small / medium / large accounts What are some of the considerations?

13. The Next FrontierMulti-Line State Funds - Potential Lines of Insurance

14. The Next FrontierMulti-Line State Funds Lines that have been entered into / discussed include, but are not limited to: • Employment Practices Liability Insurance (EPLI) • General Liability • Commercial Auto • Property • Equipment Breakdown • Crime • Inland Marine • Liquor law liability • Professional Liability (Public Officials E&O / Police Professional etc.) Potential Lines of Insurance

15. The Next FrontierMulti-Line State Funds Lines that have been entered into / discussed include, but are not limited to: • “Cyber-Risk” • Surety • Group Medical • Group Life • Accident & Health • AD&D • Group Business Travel Accident • Disability (LTD/STD) Potential Lines of Insurance

16. The Next FrontierMulti-Line State Funds – Markets in this “space” Hey! Look at me everybody! I’m a cowboy!…Howdy, Howdy, Howdy

17. The Next FrontierMulti-Line State Funds Include, but are not limited to: • Lloyd’s of London & London Companies • Various Syndicates • Beazley*, Brit, Amlin, ARK, Omega, Atrium, Catlin • Hartford Steam Boiler • General Re • AIG / Chartis / Lexington • Argo (Alteris) • Beazley Insurance Company* • Catlin • Various life insurers & reinsurers Markets in this “space”

18. Accidental, Death & Dismemberment (AD&D) Product Pairing:“A Perfect Fit”

19. Why Offering PA Products to Casualty (WC) Clients is a “Perfect Fit” Offers differentiator in highly competitive casualty (WC) market Simple, low cost & customized package 24 Hour Coverage Benefits paid in addition to any other group or individual coverage Highly Underinsured Employee Population Improved Client Retention Goodwill enhancement for Workers Comp settlement options Correlation with any workplace safety programs in place High perceived value of benefit features

20. Typical Plan Design AD&D: Varying benefit levels based on client need and price point considerations Range: $25,000 - $75,000 Key Riders: Escalator (5% for 5 years) Emergency Room Visit Special Education Benefit (Spouse and/or dependents) Child Care Center Benefit Home Alteration/Vehicle Modification

21. Typical Plan Design (cont.) Key Riders (cont.): Hospital Stay Seatbelt/Airbag Burial/Cremation Common Carrier Felonious Assault Bulletproof Vest (police/security groups) Infectious Disease (hospital/medical groups)

22. Implementation Analysis of the WC database Headcount by industry classification Demographic determination of relevant riders, benefit levels and premium tolerance Creation of composite rate for whole group or buckets by industry groupings Agree to final plan design: Consider value of one simple offering or Plan A or B option

23. Implementation (cont.) Creation of marketing plan: Branding Product marketing name Collateral (agent and consumer) Email blasts Website/dedicated URL Messaging: tie-in with workplace safety themes and restating of value proposition Administration: 100% Employer Pay vs. Voluntary Coordinate with WC renewal notices Match WC billing frequency Administer in-house if capabilities present or defer to writing carrier

24. Post Implementation Regular monitoring of premium flow and characteristics of submitted business and match against initial expectations Adapt product offering as needed based on client/agent input and sales trends Annual audit to evaluate demographics, loss experience, persistency, take-up rates, sales practices, etc. Consider offering of additional supplemental products as needed: Life Short Term Disability Limited Medical Critical Illness/Cancer Hospital Cash One carrier for all products is optimal

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